52591. Turkish Debt 1990-2002: How Did We Get Here
- Author:
- Caroline Van Rijckeghem
- Publication Date:
- 12-2004
- Content Type:
- Special Report
- Institution:
- Turkish Economic and Social Studies Foundation (TESEV)
- Abstract:
- In the first year of Turkey’s currency crisis, Turkish public debt increased from what was then a “reasonable” level, to one that was judged to be unsustainable by a wide array of observers. As we went to print in late 2004, public debt, as a percent of national income, had significantly fallen, thanks to fiscal austerity, strong growth, and appreciation of the lira, but it was still above its pre-currency crisis levels, and the debate on public debt lived on. How did Turkish debt increase in the 1990s, and in the immediate aftermath of the crisis? What were the key drivers of this build-up? What lessons were to be drawn from the experience? These are the questions that were being asked regarding the nature of this dramatic experience when the project first took off in early 2003, and are still a matter of great interest now. In fact, debt dynamics was already worrisome before the currency crisis, and had been on a sharp upward trend since the early 1990s. We attempted to resolve whether debt accumulation was due to fiscal profligacy or rather high real interest rates. Interestingly, primary balances of the public sector, other than in the early 1990s, were not very large. This suggested to us two possible reasons for the increase in debt: concealed deficits and high real interest rates. Each of these explanations too, had it’s own camp of adherents. The paper endeavored to decompose, as precisely as possible given the data limitations, the increase in the stock of debt into its most relevant components, namely primary deficits from each public sector component, concealed deficits, valuation effects, and real interest payments. The project took off in late 2002/early 2003, under the leadership of Şerif Sayin, the Director of TESEV. Murat Űçer of Eurosource Turkey guided the project in its initial stages, suggesting, for instance, the study of both the micro and macro aspects of what we named in the paper “debt-generating processes”, and provided feedback throughout. He also edited parts of the paper and contributed to the executive summary. Izak Atiyas of Sabanci University, one of our peer reviewers, made substantial contributions, in particular in the section on duty losses. He, along with Şerif Sayin, and most notably Ferhat Emil, author of the accompanying paper “Kamu Borcu Nasıl Oluştu ? Bu Noktaya Nasıl Gelindi ?” and TESEV program director, helped to interpret the initial results and to incorporate the relevant Turkish institutional aspects into the paper. Hakan Yilmaz, author of the accompanying paper and SPO expert, and Zafer Yukseler of the Central Bank of Turkey, one of our peer reviewers, also provided comments that helped clarify the nature of the Turkish data. We also received feedback from a number of colleagues, academics as well as market economists in a seminar held on the topic. Information for the project was obtained from published official and IMF sources, as well as in a series of meeting with various departments of the Treasury.
- Topic:
- Debt, Economy, Accountability, and Transparency
- Political Geography:
- Turkey and Middle East